BILL ANALYSIS                                                                                                                                                                                                    Ó



          SENATE COMMITTEE ON APPROPRIATIONS
                             Senator Ricardo Lara, Chair
                            2015 - 2016  Regular  Session

          SB 1350 (Wolk) - Agricultural lands: greenhouse gases: Healthy  
          Soils Program
          
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          |Version: May 10, 2016           |Policy Vote: E.Q. 6 - 0, AGRI.  |
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          |Urgency: No                     |Mandate: No                     |
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          |Hearing Date: May 16, 2016      |Consultant: Narisha Bonakdar    |
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          This bill meets the criteria for referral to the Suspense File.


          Bill  
          Summary:  SB 1350 requires the California Department of Food and  
          Agriculture (CDFA), in consultation with the Environmental  
          Farming Scientific Advisory Panel (panel), to establish and  
          oversee a Healthy Soils Program that provides incentives (i.e.,  
          loans and grants) and educational materials and outreach to  
          farmers whose management practices contribute to healthful soils  
          and result in net long-term on-farm greenhouse gas benefits.   
          The bill also expands the panel from five to seven members and  
          requires at least one member to have training and experience in  
          on-farm management practices that reduce greenhouse gas  
          emissions or sequester carbon.  


          Fiscal  
          Impact:  
           Approximately $290,000 (Cost of Implementation Fund (COI) and  
            GGRF) for the ARB to coordinate program development and  
            implementation with CDFA, to develop quantification  







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            methodologies for eligible projects, and to evaluate the legal  
            nexus and GHG reduction opportunities.
           Approximately $2.2 million (GGRF) annually for CDFA's staffing  
            costs for program development and administration.


       Background:1)  Agriculture and GHG reductions.  According to ARB's 2014  
          Scoping Plan Update, agricultural sources in 2012 accounted for  
          about eight percent of California's total GHG emissions,  
          including methane (CH4), carbon dioxide (CO2), nitrous oxide  
          (N2O), and black carbon.  California's agricultural GHG emission  
          inventory includes on-site emissions from animal enteric  
          fermentation, manure management, rice cultivation, energy use  
          (including fuel combustion), crop residue burning, and soil  
          management practices, particularly fertilizer and manure  
          applications. 
          However, various agricultural practices can significantly reduce  
          GHG emissions, and sequester carbon as well.  GHG reduction and  
          sequestration strategies in the agricultural sector include  
          reduced energy usage through more efficient watering systems,  
          such as drip irrigation; reduced nitrogen fertilizer usage;  
          shifting tilling practices to improve soil carbon retention;  
          changing livestock feed and practices to reduce livestock  
          enteric rumination, manure management where manure is converted  
          to alternative fuels; and establishing perennial vegetation on  
          land retired from agriculture production to sequester carbon in  
          the plants and soil. In addition, recent research also suggests  
          that applications of compost may result in greater carbon  
          sequestration in soils. 


          Many of these land management practices to reduce or sequester  
          GHGs also result in significant environmental cobenefits, such  
          as improved water efficiency, improved air and water quality,  
          and greater resiliency of agricultural land to climate change.


          Cap-and-trade auction revenue.  Since November 2012, ARB has  
          conducted 14 cap-and-trade auctions, generating over $4 billion  
          in proceeds to the state.  


          State law specifies that the auction revenues must be used to  
          facilitate the achievement of GHG emissions reductions and  








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          outlines various categories of allowable expenditures.  Statute  
          further requires the Department of Finance, in consultation with  
          ARB and any other relevant state agency, to develop a three-year  
          investment plan for the auction proceeds, which are deposited in  
          the GGRF.  


          Legal consideration of cap-and-trade auction revenues.  The  
          2012-13 Budget analysis of cap-and-trade auction revenue by the  
          Legislative Analyst's Office noted that, based on an opinion  
          from the Office of Legislative Counsel, the auction revenues  
          should be considered mitigation fee revenues, and their use  
          requires that a clear nexus exist between an activity for which  
          a mitigation fee is used and the adverse effects related to the  
          activity on which that fee is levied.  Therefore, in order for  
          their use to be valid as mitigation fees, revenues from the  
          cap-and-trade auction must be used to mitigate GHG emissions or  
          the harms caused by GHG emissions. 


          In 2012, the California Chamber of Commerce filed a lawsuit  
          against the ARB claiming that cap-and-trade auction revenues  
          constitute illegal tax revenue.  In November 2013, the superior  
          court ruling declined to hold the auction a tax, concluding that  
          it is more akin to a regulatory fee.  In February of 2014, the  
          plaintiffs filed an appeal with the 3rd District Court of Appeal  
          in Sacramento.  That case is currently pending.


          Healthy Soils Initiative and the budget.  In his 2015-16 budget  
          proposal, Governor Brown directed $10 million from the GGRF  
          toward a new "Healthy Soils Initiative" to increase carbon in  
          soil to improve soil health, agricultural productivity, soil  
          water-holding capacity, and decreased sediment erosion.   
          Governor Brown directed CDFA, under its existing authority  
          provided by the Cannella Environmental Farming Act, to  
          coordinate with other key agencies to work on several new  
          initiatives.  CDFA has since developed five action measures:  
          protect and restore soil carbon; identify funding opportunities,  
          including market development; provide research, education and  
          technical support; increase governmental efficiencies to enhance  
          soil health on public and private lands; and ensure interagency  
          coordination and collaboration.  However, no appropriations to  
          CDFA for a "Healthy Soils" program were approved by the  








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          Legislature last year. 




          Proposed Law:  
            This bill:  
          1) Requires the Secretary of CDFA to appoint five members to the  
             panel, bringing the total Panel membership to seven, and  
             requires two of those members have at least five years of  
             experience in agriculture and represent production  
             agriculture.


          2) Requires that at least one of the members appointed by the  
             Secretary of CDFA have experience in on-farm management  
             practices that reduce or sequester GHG emissions. 


          3) Requires ARB to consult with the Secretary of CDFA, and the  
             Panel, for development of on-farm GHG emission reduction  
             quantification methodology.


          4) Allows CDFA, in consultation with the panel, to determine  
             priorities for the program and give priority to projects that  
             occur in and benefit disadvantaged communities, show promise  
             of being replicable in other parts of the state, or provide  
             environmental and agronomic cobenefits, such as improved air  
             and water quality, improved crop yield, and reduced soil  
             erosion.


          5) Authorizes the panel to advise CDFA on scientific findings,  
             program framework, guidelines, grower incentives, and  
             providing technical assistance.


          6) If CDFA elects to fund on-farm demonstration projects,  
             requires CDFA, in consultation with the panel, to establish a  
             technical advisory committee to review on-farm demonstration  
             project applications for scientific validity and the proposed  
             project's potential to achieve greenhouse gas benefits.









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          7) Requires CDFA, in consultation with the Panel, to implement a  
             Healthy Soils Program to provide incentives, including loans,  
             grants, research, and technical assistance or educational  
             materials and outreach, to farmers whose management practices  
             contribute to healthful soils and result in net long-term  
             on-farm greenhouse gas benefits.


          8) Requires CDFA to implement the program in accordance with  
             funding guidelines and quantification methodologies developed  
             by ARB. 


          Staff Comments: Staff notes that there are multiple bills being  
          considered by both houses of the Legislature that propose  
          projects that would be eligible to receive GGRF funds. It is  
          unclear how these bills will interact with each other. 




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